Are We Ready for a Cashless Society?

The UK is at the forefront of the rapid shift toward a cashless society. Here at Insight Security we can see how the demand for secure cash handling products has dwindled. In our latest post we look at our migration toward cashlessness.

The UK is widely recognised as leading the move toward a cashless society, alongside some Scandinavian countries. The trend is particularly apparent in London where many businesses no longer accept cash payments. New research shared by the UK’s cash access and ATM network provider shows how 45% of people have now encountered situations where cash isn’t accepted or has been discouraged with 20% saying this has been inconvenient.

Traditional Cash Handling and Cash in Transit

Cash handling process in business involves gathering, processing, accounting and securely depositing cash payments. Personnel involved in these procedures hold highly trusted, responsible roles in their businesses.

Cash handling and processing traditionally utilises a variety of cash protection and transfer products including cash bags, cash-in-transit boxes (CIT boxes), tills, till-safes, cash safes and strong rooms. Declining demand for secure cash boxes and cash trolleys has resulted in some manufacturers ceasing production.

While cash continues to be used there is an ongoing need for robust, reliable cash handling and security products. But as systems progressively move away from cash, such as car park payment machines, the demand and need for secure cash handling systems inevitably declines.

How Will a Cashless Society Work?

A fully cashless society will mean that traditional, physical bank notes and coins are no longer accepted in any financial transaction. Payments would be made digitally using credit cards, debit cards, electronic money transfer systems, online mobile payment services or cryptocurrency. At present there are no fully cashless societies or countries but it is widely anticipated this is the direction in which we are moving.

Sweden is now recognised by many as the most cashless country with only around 15% of transactions involving the use of cash. The value of cash in circulation in Sweden has fallen to just 1% of GDP and Swedish retailers and restaurants are allowed to refuse cash payments simply by presenting appropriate advisory signage.

It is accepted that the trend toward cashlessness is unstoppable, largely due to increased digitisation and growing consumer preference for using cashless, mobile payment systems. Banks are a key driving force behind the cashless revolution which they are promoting by making cash systems (ATMs and bank branches) less accessible to their customers. The global coronavirus pandemic has also played a significant role in accelerating the use of mobile, cashless payment systems.

Pros and Cons of a Cashless Society

One of the primary benefits often cited for a cashless society is that it reduces the risk of crime. Cash is widely recognised as a favoured currency for criminals with bank robberies, burglary and other forms of theft and corruption often relying on the availability of cash. The entirely untraceable nature of cash is one of the key reasons criminals like it so much. Unlike cash, digital transfers are recorded and if a payment card is stolen it can be quickly blocked via the bank’s software. Cashless payment systems also help prevent money laundering and combat the use and distribution of fake currency.

Although cashless systems clearly stymie certain forms of criminality there are others that arise from the use of digital systems. Cybercrime is an ever-changing and growing concern. We are now routinely hearing how sophisticated cybercriminals use hacking, phishing, malicious software and ransomware to perpetrate their crimes. As we increasingly adopt digital payment and money processing systems the opportunities for cybercriminals also grow.

Another positive attribute of cashless payment systems is faster, easier and less error-prone transactions. Cashless payment systems avoid the need to have a pocket full of change to pay for car parking and enable retailers to speedily and efficiently deal with all transactions without the need for tills full of change.

But many people like to use cash as it helps them to budget efficiently. People can readily see how much money they have and adjust their spending accordingly. Physical cash means its impossible to spend more than is available, whereas digital payment systems can result in more people falling into debt.

Digital payment accounts are now incredibly easy to setup which is why 99% of UK adults made or received a digital payment in 2021. In many cases people only need a valid form of personal identification along with a mobile phone number to setup their accounts.

But while these digital systems are heralded as highly inclusive its important to recognise how they are entirely reliant upon technology. Digital payment capability often requires a reliable internet connection and there are many areas of the UK where internet connectivity is poor. And in the event of a widespread blackout, payment systems would fail.

Another important aspect of cashlessness is the environmental impact. Cash is well known to have a significant negative impact due to the energy needed to manufacturer notes and coins, the emission of harmful chemicals and gases during the manufacturing process and the emissions caused when transporting quantities of cash. Although many plastic payment cards are not biodegradable and are responsible for some greenhouse gas emissions in their production, each debit card transaction makes a miniscule contribution to global warming.

Perhaps the most significant negative aspect of a cashless society is how reliance on digital technologies can leave some people behind.

Who is Excluded from a Cashless Society?

Although cashless systems offer some notable advantages there are clearly disadvantages we need to be aware of. It is clear that those who are already vulnerable are likely to experience the greatest difficulties as we move toward cashlessness.

Over eight million UK adults (around 17% of the population) rely on cash to make day to day payments. And around 1.7 million people in the UK don’t have bank accounts with around 90% of them on low incomes.

Many elderly people, for example, who are already suffering due to our increased reliance on technology, are likely to struggle without cash. The closure of local bank branches alongside the lack of ATM machine availability is already making day-to-day life challenging in many areas.

People with low income or debt are also very vulnerable as are those who live and work in rural areas where internet connectivity is very poor. And many disabled people rely on cash to pay their carers and other service providers so the closure of banks, ATM machines and the move into digital-only payment methods is very challenging for them.

Also, as previously noted, cash is used by many to help them budget. They directly allocate amounts of cash to various pots to cover their bills, pay for their groceries, save for future needs, meet their transportation costs and more. This form of simple, physical budgeting is what many people rely on to avoid overspending and going into debt. The absence of real cash money makes overspending much easier and increases the likelihood of falling into debt.

Small businesses are also susceptible to the impact of additional costs due to cashlessness. Credit card and debit card payments generally involve a 3% transaction fee, which is why many small businesses haven’t accepted card payments for low value purchases.

The Cost of Going Cashless

In a cashless society the banks and technology companies are effectively in control of our money. As we have seen in the news, they can close and freeze accounts causing account holders a great deal of inconvenience and cost. They also accumulate, hold and control a vast amount of valuable data on the financial status and affairs of individuals and businesses. Account holders trust their banks to keep their data safe and secure but cyber attacks are a significant threat.

The following example of how cash payments compare with digital payments is often cited. A consumer pays for dinner at a restaurant using a £50 bank note. The restaurant owner then uses that £50 note to pay for their services, such as laundry. The laundry owner then does the same, paying for services using the £50 note - which is still worth £50. But if the diner at the restaurant had paid for their meal digitally, perhaps using a debit or credit card, the restaurant would be charged around 3% (£1.50) by the bank or card provider. Every subsequent digital transaction incurs transaction fees which means that after a number of digital transactions the initial exchange of £50 will have fallen to a value of maybe just £5 with £45 taken in fees by the banks dealing with the transactions.

The key point made in this simplistic comparison is that currency (the £50 note) intrinsically retains its value whereas a £50 digital transaction depreciates in value due transaction fees. But this example fails to acknowledge the costs incurred when dealing with cash. Research shows that expenses involved in cash-handling processes range from 4.7% to 15.3%, depending on the retail segment. These are often hidden and outweigh the costs of credit card and digital payment fees.

How Long Before the UK Becomes a Cashless Society?

During 2021 a total of around 23.1 million consumers either used no cash or only used notes or coins once a month. This number has grown rapidly since 2018 when 5.4 million people had hardly ever used cash. In 2020 the number escalated to 13.7 million, largely due to the pandemic.

The widely accepted prediction is that cash use will decline as the UK transitions to a hybrid economy where cash is no longer as important as it was but continues to be used. It is anticipated that the decline in cash usage in the UK will mean that by 2031 cash will only be used in around 6% of transactions. But cash is recognised as valuable and preferred by many so it isn’t likely to disappear any time soon.

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